The Real Deal New York

Urban Compass shifts commission structure to take on sales

Startup hires Citi Habitats veterans Steve Halpern and Udi Eliasi
By Katherine Clarke | December 19, 2013 02:22PM

Seven months after the much-hyped Manhattan startup Urban Compass bounded onto the real estate scene, the company has shifted its business model towards a more traditional brokerage concept to allow for experienced sales brokers to join the ranks, The Real Deal has learned.

The company, which initially combined a StreetEasy-style listings website with a team of salaried “neighborhood specialists” who functioned much like rental brokers, will now pay some of its agents solely on commission, senior executive Gordon Golub said. The company has also ditched the “neighborhood specialist” moniker, after receiving feedback from both landlords and consumers that the title was confusing.

“Many of the initial hires were asking if they can go to independent contractor status because of the very high closing ratio that they had,” Golub said. “They thought it would be more profitable for them. Others who had seen the success of those who made the change initially are now looking to do the same.”

Close to 50 percent of all Urban Compass agents are now independent contractors working on commission, but the remaining agents can remain salaried if they choose.

“We want the top agents here and the top exclusives here,” said Ori Allon, one of the founders of the company. “We realized that a lot of these sales guys don’t want to work on salary. It really depends on the person.”

Agents are also no longer bound by neighborhood restrictions; previously, they worked with clients in a single neighborhood, and then passed them on if apartment hunters wanted to look elsewhere.

“The players in the industry didn’t really understand what the title ‘neighborhood specialist’ meant,” Golub said. “They were confused as to whether they were licensed and what would happen if [clients] wanted to look in more than one neighborhood. ”

On the commission side, Urban Compass clients used to pay 7.5 percent of a year’s rent on a direct deal — less than the standard New York City broker’s fee of up to 15 percent — which went directly to the firm. On a deal co-brokered with an agent from another firm, the Urban Compass employee received a 5 percent commission and the other agent got 7.5 percent. Now, there is no set commission cap for agents.

The move towards a more traditional compensation model for its brokers coincides with several recent high-profile hires for the firm as well as its move into the sales arena. (The company had previously only handled rental listings.) Indeed, the company has recruited 12 new agents to its ranks, including Steve Halpern and Udi Eliasi, formerly of Citi Habitats. Halpern represents the rental building 214 Lafayette Street, which served as a backdrop for music videos by Beyoncé and John Mayer, according to Urban Compass.

The team also includes agents from firms like Brown Harris Stevens, Town Residential, the Corcoran Group, Halstead Property, and Nest Seekers International, the firm said.

It was unclear exactly how many exclusive sales listings Urban Compass has secured. Golub declined to comment on specific numbers.

“When you start at zero, growth can happen very fast, but the growth that we’ve had so far has been purely on the rental side,” Golub said. “We didn’t have the ability to do sales and we weren’t set up to do so previously. Moving forward, many of the initial hires who used to have the title neighborhood specialist are working with buyers right now. ”

With the move to a typical brokerage commission structure for some of its brokers, Urban Compass will now compete on a more level playing field with other well-established firms.

So, what makes the company stand out in an already crowded arena?

“Urban Compass is the only brokerage that has both proprietary listings and CRM databases entirely developed by their in-house engineering team,” said Andi Bernstein, a spokesperson for the company. “Moreover, we are the only company that has created an agent mobile app that integrates these databases and enables agents to perform every aspect of their job on a mobile phone.”

Still, industry veterans aren’t convinced that reverting back to the old business model — at least in part — is the path to success for Urban Compass, since the company neither has the long track record of existing firms or big-name brokers with trophy listings.

“Over 80 percent of sales transactions are done through real estate brokers — the technology alone is not enough to attract the best and the brightest,” said Andrew Heiberger, CEO of Town, noting that it was unusual to see a firm shift its fundamental principals so soon out of the gate. “In fact, a lot of them don’t even use technology at all. It’s about relationships, networks, understanding the economy as well as market trends, design and architecture.”